7/21/2015. July 22, 2015 at 1 p.m. Central time FRAUD & EMBEZZLEMENT. Lessons from the Trenches. Angela Morelock Partner

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1 July 22, 2015 at 1 p.m. Central time FRAUD & EMBEZZLEMENT Lessons from the Trenches Angela Morelock Partner amorelock@bkd.com 1

2 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form with Title & date of live webinar Your company name Your printed name, signature & address All group attendance sheets must be submitted to within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar Perp Poetry 2

3 Cost of Fraud & Abuse $3.7 trillion worldwide 5% of revenues Over half recover nothing after fraud is discovered 2014 by the Association of Certified Fraud Examiners, Inc. 3

4 2014 by the Association of Certified Fraud Examiners, Inc by the Association of Certified Fraud Examiners, Inc. 4

5 2014 by the Association of Certified Fraud Examiners, Inc by the Association of Certified Fraud Examiners, Inc. 5

6 Damages to Victims Go Beyond Dollars & Cents Reputation Loss of public confidence Detrimental to attracting new relationships Damage to relationships Sagging staff morale Distraction from mission Profile of Typical Fraud Perpetrator 6

7 The Fraud Triangle Perceived pressure facing individual Perceived opportunity to commit fraud Exacerbated in economic downturn Person s rationalization or integrity The Typical Perpetrator White male College-educated Intelligent Married Most loyal employee 7

8 Profile of Fraud Perpetrator Male or female No prior criminal history (<8%) Well liked by co-workers Likes to give gifts/compulsive shopper Gambling problems not unusual Long-term employee Rationalizes: Starts small or borrows Lifestyle clues 2014 by the Association of Certified Fraud Examiners, Inc. 8

9 2014 by the Association of Certified Fraud Examiners, Inc. Cash Schemes Stealing cash funds processed or on hand Not recording & stealing cash receipts Under ringing & stealing difference in cash receipts Altering bank deposits 9

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11 Arrest made in June 2015 Close family friend Worked in back office of Long Valley Market 11

12 Summary of Case University Ticket Scandal Approximately $2 million (face value) in tickets sold to brokers by insiders Multiple employees involved Lasted for at least five years Disguised as complimentary tickets/other Ticket broker split profits with employee(s) University Ticket Scandal Ticket office had climate of an ice cream store where the employees feel free to sample the wares Tickets sold for cash & favors One guy (quick $25,000 for Final 4 tickets) Favors (e.g., reduced apartment rent) Landlord calls university wanting his points 12

13 University Ticket Scandal Encouraged employees to take tickets Falsified year-end ticket clean up Destroyed records to prevent reconciliation How BKD helped University Ticket Scandal Analysis of traffic Analysis of files on 17 computers Data analysis of ticket sales Gold mine of information Text messages on laptop University employee had no idea his iphone dumped all this onto his laptop 13

14 Unique Issues for Grocers Beyond Cash Food stamps Coupons Lottery tickets Gift cards 14

15 Accounts Receivable Schemes Lapping Forging checks received Altering credit card receipts Granting bogus credits Bogus bad debt write-offs or account adjustments Inventory Theft of inventory (including warehouse inventory) Lack of perpetual inventory heightens risk Take physical inventory discrepancies seriously Good monitoring & aware staff Cameras 15

16 Accounts Payable & Purchasing Personal bills Fictitious suppliers Kickbacks Ordering personal items Petty cash funds Employee expense accounts Credit cards United States of America v. Christopher Earl Pratt 16

17 United States of America v. Christopher Earl Pratt Asset forfeiture United States of America v. Christopher Earl Pratt 17

18 AP Manipulation - Collin Street Bakery 18

19 Department of Justice Press Release 19

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21 Common Data Mining Areas Employees & payroll Vendors & accounts payable Expense reimbursement Loans (financial institutions only) Patient accounting (health care only) Sales Inventory Vendor Trending Analysis Time Series Analysis: Acceleration Vendor: JLM Plumbing Authorized: Janice L. McPhearson Acceleration as confidence builds Getting Greedy Test phase 21

22 Name Mining Anagrams Address Mining Mail Drops Fictitious Vendor with UPS Store Address 22

23 Check Sequence Analysis Payroll Schemes Ghost employees Manipulated time records Unclaimed payroll checks Writing extra payroll or bonus checks Leave time manipulation Withholding fraud W-2 fraud 23

24 Protect Your Organization Fraud risk assessment Internal controls Proper environment External review Reporting mechanism Hire right Fidelity bonding Establish Perception of Detection 2014 by the Association of Certified Fraud Examiners, Inc. 24

25 Resources Managing the Business Risk of Fraud: A Practical Guide (AICPA & IIA) Management Anti-Fraud Programs & Controls (exhibit to SAS 99) ACFE Fraud Prevention Check-Up ACFE Best Practices in Ethics Hotlines ACFE Sample Code of Conduct ACFE Sample Ethics Policy QUESTIONS? 25

26 CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information in BKD webinars is presented by BKD professionals, but applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered in these webinars. CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at training@bkd.com 26

27 THANK YOU! FOR MORE INFORMATION Angela Morelock, CPA, CFE, CFF, ABV Partner 27